S&P Revises Outlook on Mutual of Omaha to ‘Negative’

Standard & Poor’s Ratings Services said it has revised its outlook on Mutual of Omaha Insurance Co. to negative from stable, and has assigned its ‘A’ rating to Mutual of Omaha’s issue of up to $300 million in surplus notes.

S&P said, the ratings on Mutual of Omaha continue to reflect the group’s strong competitive position and operating performance. However, the growth initiative in Mutual of Omaha Insurance Co.’s Individual Financial Services (IFS) segment is causing significant statutory surplus strain, “though this strategy could favorably affect our view of the company’s competitive position if it results in profitable growth,” S&P said.

To offset the surplus strain, the company is issuing surplus notes of up to $300 million.Yet even after incorporating the surplus note proceeds, S&P said it expects that the company will have a capital deficiency at the ‘AA’ level through 2011.

“We have a favorable view of management’s intent to use proceeds from the notes to offset the statutory surplus strain that has resulted from Mutual of Omaha’s efforts to significantly bolster its individual life insurance and Medicare supplement sales in 2010,” noted S&P credit analyst Jon Reichert. “However, there are inherent risks in this rapid growth strategy, including the reduction in statutory surplus.”

Through June 30, 2010, Mutual of Omaha’s Medicare supplement sales had increased nearly 60 percent over the comparable prior-year period, and individual life sales had increased 51 percent. From the standpoint of competitive position, S&P said it views Mutual of Omaha’s strong, profitable growth in its traditional insurance segments favorably. “We anticipate that this level of growth will continue through 2010 and then subside in 2011,” S&P said.

As calculated by Standard & Poor’s capital model, on a pro forma basis (including the surplus note proceeds) as of June 30, 2010, Mutual of Omaha had a capital deficiency at the ‘AA’ level, and the rating company projects that the deficiency will continue through 2010 and 2011.

Source: S&P

Topics Trends Excess Surplus